Please enable JavaScript.
Coggle requires JavaScript to display documents.
Unit 2 - External finance :star: - Coggle Diagram
Unit 2 - External finance
:star:
Business angels
= individuals who invest in start up. businesses (early stages). They take a % stake in the business
Crowd funding
= transactions are done online that involves a large number of people providing finance for the business
Share capital
= limited company, shares are sold to shareholders who will invest capital into the business
Venture capital
= specialists who invest in small-medium sized businesses after the initial start up, generally invest in high growth companies
Overdrafts
= a business spends more money that they have available to go to minus
Leasing
= contract through which a business uses resources such as equipments and give regular payments
Family and friends
= common source of finance for small businesses as they borrow money from family and friends
Trade credit
= a business by now, pays later, usually within 30-90 days
Grants
= government provides money for a business that helps the community
Bank loan
= arrangement where the amount borrowed must be returned over a period of time in regular equal payments
Peer to peer funding
= individuals lend to other individuals through the internet
Family & friends
:check: they may not want ownership of the business
:red_cross: may ruin family relationships if loans can't be payed back
:check: cheap source of finance as you usually don't have to pay an interest, and if you do its usually smaller than the bank
Bank loan
:check: obtain a large amount of capital
:check: business may provide with free advises
:red_cross: interest rates
Peer to peer funding
:red_cross: lack of government protection
:check: interest rates are better than those offered by banks.
:red_cross: loans are unsecured, harm for lenders cos they might lose money.
:check: convenience as it can be completed online quickly
Business angels
:red_cross: conflict of interest
:red_cross: takes % stake of the business
:check: does not have to be paid back
Crowd funding
:red_cross: failed projects risk damage to the reputation of the business
:check: quick way to raise finance
Share capital
:red_cross: existing ownership will be diluted
:check: raise large amounts of money
:check: does not have to pay shareholders back
Venture capital
:check: provide specialist advise
:check: used when they are rejected by other sources of finance
:red_cross: take % stake in the company (means they have some control and are entitled to share the profit)
Overdrafts
:check: allow business to access cash in emergencies
:red_cross: interest rate may be applied
Leasing
:red_cross: loans cannot be secured on assets that are leased
:red_cross: may be expensive on the long run than buying the equipment initially
:check: maintenance and repair cost is not the responsibility of the user
:check: no large sum of money is needed to buy the equipment
Trade credit
:check: profitable during inflations
:check: interest free
:red_cross: delaying payments causes poor business relations with suppliers
:red_cross: the cost of goods Is often higher if the firm does not pay early.
Grants
:red_cross: only applicable if the business meets specific criteria ( small businesses or the ones that helps the community)
:check: does not have to be repaid